The Future of Residential Foreclosures
There are indications that home sales are picking up together with prices but the foreclosure numbers continue to march apace. Rick Sharga of RealtyTrac that tracks foreclosures was interviewed by Barbara Kiviat of Times regarding the future of residential foreclosures.
Taking an analogy from baseball Sharga opined that right now the foreclosure situation in the country is in the middle of 6th inning. It will not peak till 2010 and will not be down to normal till 2013. Already 2.3 million houses in the last one year are in some stage of foreclosure – it being equal to that of the previous year. 7 million families are defaulting or in foreclosure. There is no doubt that trouble is fast brewing.
Under normal circumstances most of the defaulting house owners find some way to cure the loans. But currently the numbers are far from promising. Over 50% of the houses that are entering foreclosure end up being repossessed by the lenders. However a good number are still managing to skip foreclosure either by modification of loans or short sales.
Foreclosure activity has gone up six times since what it was four years previously. The system is not geared to tackle such huge numbers. There are also other complications. The servicers are causing delay. They are seeing to it that the borrowers do not qualify or HAMP (Home Affordable Modification Program). The servicers gain more from foreclosure whereas neither the lenders nor investors apart from borrowers gain from it.
The federally sponsored and financed programme of HAMP has met with initial success. The target of trial modifications has been met with. It is good news. But the programme is not ready to meet the onrush of the next rush of foreclosures that is poised to break. The programme is failing where prevention of foreclosure is concerned.
The current wave of foreclosures is being triggered by unemployment. Without a steady income it is not possible for borrowers to be current on their mortgages and neither do they qualify for relief measures. Inevitably the borrowers succumb to foreclosure. Secondly whole swaths of ARM loans are ready to set. This will kick off more foreclosures. Most the borrowers will become underwater with the value of the property being less than the loan value. The only way these can be saved will be if cuts are made in the principal – something the lenders are not willing to do.
